There was not a slowdown in news at major broker-dealers this summer. LPL Financial recently shared the names of the 20 mutual fund partners it is working with on its fiduciary-friendly platform.
The mutual-fund-only (or MFO) platform, which will be rolled out in early 2018, does not include fund behemoth Vanguard. Nor does bond shop Pimco make the list. (ETFs are not part of the new platform, but are sold via general brokerage and fee-based accounts.)
It does offer clients reduced fees, while advisors get standardized compensation. The no-load funds bring advisors upfront onboarding commissions of up to 3.5% and a “consistent” trail of up to 0.25%.
The onboarding charge is waived for investors who already hold assets in these funds; about 80% of client assets in mutual funds now on LPL’s brokerage platform are invested in these 20 fund families, according to a memo sent out to the IBD’s affiliated advisors in mid-July.
LPL also says investors can easily move between fund families, rather than sticking with the same one year after year. Plus, clients may get discounts based on the total amount of brokerage assets invested in MFO-eligible mutual funds. The IBD has also eliminated certain annual account and trading fees.
“With this platform, LPL is striving to preserve choice for investors while managing the evolving regulatory environment,” said Rob Pettman, head of Product and Platform Management, in a statement. “We will be delivering a price competitive solution with the benefit of free exchanges across participating fund companies to help our advisors differentiate their practices in the market and serve a broad range of investors.”
When LPL outlined plans for the MFO platform in August 2016, the IBD said it anticipated it would introduce it in the first quarter of 2017. When asked about the one-year delay, a spokesperson pointed to “uncertainty” related to the Department of Labor’s new fiduciary rule, which went into effect June 9, as a key factor; the platform also entailed changes to how funds are traded by the IBD and development efforts that included product vendors and sponsors.
The 20 fund companies expected to be available on the new platform in 2018 are: AB (formerly Alliance Bernstein), American Century Investments, American Funds, BlackRock, Columbia Threadneedle Investments, Delaware & Optimum Funds, Eaton Vance Investment Managers, Fidelity Investments (pending final approval), Franklin Templeton Investments, Goldman Sachs Asset Management, Invesco, J.P. Morgan Asset Management, John Hancock Investments, Legg Mason Global Asset Management, Lord Abbett, MFS Investment Management, New York Life MainStay Investments, OppenheimerFunds, Principal Global Investors and Putnam Investments.
“Goldman Sachs Asset Management is pleased to be working with LPL Financial on the development of its Mutual Fund Only brokerage platform, which will feature the GS Financial Square Government Money Market Fund as a vehicle to access the platform,” said Matt Hostasa, managing director of Goldman Sachs Asset Management, in a statement.
Surveys Say …
According to a study released in July by PriceMetrix, part of McKinsey & Co., advisors’ average assets under management improved 6% in 2016 from the prior year and hit $92 million. Revenue per advisor, or average fees and commissions, decreased for the second year in a row — dropping 1% to 583,000 in 2016.
“This trend is particularly disturbing in light of the strong equity market performance during that period,” said Patrick Kennedy, chief customer officer of PriceMetrix, in “The State of Retail Wealth Management.” Drilling down into the acquisition of new clients, the research finds that advisors reached “a new low” in 2016, with an average of only 7.5 new household relationships.
“There is very little growth in client relationships with Gen X and Gen Y. This is an early warning sign that advisors should pay attention to,” Kennedy explained in an interview.
“Some of these individuals are in their 50s and becoming attractive prospects,” he added. The issue for advisors, of course, is whether they can convert these prospects to clients.
The study found that advisors are growing their fee-based revenue, which now represents about 54% of their production — up from 49% a year earlier. However, the level of fees as a percentage of assets fell in 2016 to 1.13% from 1.16% in 2015.
“This decline follows several years of stability, and raises concerns that advisors may be succumbing to the price pressure from new wealth-management competitors, such as robo-advisors,” Kennedy said. The study tracks satisfaction tied to compensation, firm leadership, professional development, operations, client support, technology and problem resolution.